When might you need to think about CGT?
You may need to consider capital gains tax when selling an investment or second property, transferring an asset, giving a valuable asset to family, selling business assets or changing gifting plans.
A guide to Capital Gains Tax
Capital Gains Tax and how it could affect you
Capital Gains Tax can affect how much you keep when you sell or give away certain assets. It can also apply when you give an asset away, even if no money changes hands.
Capital gains tax is different from inheritance tax. Inheritance tax is usually worked out when someone dies, but capital gains tax may apply when an asset is sold, transferred, or given away while someone is still alive.
Planning ahead can help you understand the tax that may be due and whether a different option could work better for you.
What the Life100+ research tells us
People often want to help their family with important costs.
- 34% of people who had made, or planned to make, a gift wanted to help family with major expenses.
- 30% wanted to help with a house deposit.
- People expected to receive their most significant gift or inheritance at an average age of 52.
Giving an asset earlier may help family members at an important time in their lives. But giving property, shares or investments may lead to Capital Gains Tax, even if no money changes hands.
What is Capital Gains Tax?
Capital Gains Tax is a tax on any profit when you sell, give away, transfer, exchange, or otherwise dispose of an asset.
This can include property, shares, investments, land and valuable belongings.
You may need to pay Capital Gains Tax even if no money changes hands. For example, if you give a property or shares to a family member, HMRC may use its market value to work out the tax.
Capital Gains Tax is charged on the gain, not the full value of the asset. A gain is usually the difference between what you paid for the asset and what it was worth when you sold or gave it away.
You may be able to take off some costs, such as the cost of buying, selling or improving the asset.
Before making a decision
Tax treatment can depend on how the asset is owned, its value, when it was acquired and your individual circumstances, so consider financial advice before acting.
When do you not pay Capital Gains Tax?
You do not usually pay Capital Gains Tax when you sell or give away:
- your main home, if it meets the rules
- investments held in an ISA or pension
- a car for personal use
- assets given to your husband, wife or civil partner
- assets given to charity.
Different rules can apply if you let out part of your home, use it for business or live somewhere else for part of the time.
How much Capital Gains Tax might you pay?
Most people can make gains of up to £3,000 in a tax year before Capital Gains Tax is due. This is your total tax-free amount for the year, not an allowance for each sale.
The tax rate depends on your income and the type of asset you sell. The usual rates are:
- 18% for some gains within your basic-rate Income Tax band
- 24% for gains above this band.
Other rates and tax reliefs can apply, especially for business assets.
If you make a loss when selling an asset, you may be able to use it to reduce tax on other gains.
Giving cash does not usually lead to Capital Gains Tax.
However, giving away property, shares or investments that have gone up in value may lead to Capital Gains Tax. The tax may be due when you make the gift.
The gift may also affect Inheritance Tax. If you die within seven years of making the gift, it may still count as part of your estate.
This means a gift can lead to:
- Capital Gains Tax when you give the asset away
- Inheritance Tax later, if you die within seven years.
It is important to look at both taxes before making a significant gift.
Read our guide to Inheritance Tax
What happens when someone dies?
Capital Gains Tax is not usually charged when someone dies.
Instead, the assets are valued at the date of death. This gives the person who inherits them a new starting value for Capital Gains Tax.
If they later sell the asset and it has gone up in value, they may need to pay Capital Gains Tax on the increase.
Inheritance Tax may still be due on the estate.
Putting property, shares or investments into a trust can lead to Capital Gains Tax. Tax may also be due when trustees sell assets or give them to a beneficiary.
You should get financial advice before putting assets into a trust. A regulated financial adviser can help you understand how this could affect Capital Gains Tax, Inheritance Tax and your wider plans.
What should I do if I want to sell or gift my assets?
Capital Gains Tax can be complex, especially if you are selling property, shares, business assets or investments.
The best next step is to speak to a regulated financial adviser before you sell or give away a significant asset. They can help you understand:
- whether Capital Gains Tax may be due
- how a gift could affect Inheritance Tax
- whether you can use your tax-free amount or a tax relief
- how to help your family whilst protecting your own future.
Tax rules and allowances can change. A financial adviser can help you make a plan that suits your circumstances.
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Important information
This information is intended as a general guide only and is not personal financial, legal or tax advice. Consider taking appropriate financial, legal or tax advice before making decisions about retirement, savings, investments, gifting, inheritance, estate planning or family support.